7/09/2008 @ 5:30PM

Senate Grills 'Wiretapping' Ad Firm

The U.S. government has never seemed sure whether it views data collection by online advertisers as a healthy business driver for the Internet, or a looming privacy threat needing regulation. But despite hauling Web ad giants like
Google
,
Microsoft
, and Facebook before a Senate Commerce Committee hearing Wednesday, the Senator chairing the hearing seemed to have only made up his mind about one lesser-known online ad firm: Redwood, Calif.-based NebuAd.

In the first minute of questioning, Senator Byron Dorgan D-N.D., immediately took issue with NebuAd’s controversial new approach to targeting ads: The small firm, founded in 2006, partners with Internet service providers (ISPs) to track all of a user’s activities on the Web and feeds parts of that information to its advertising network. (See: Broadband Indiscretions.)

Tapping ISP data holds the promise of a lucrative new method for making Web ads more effective. But Dorgan seemed less than pleased with the prospect. “The stories I’ve seen say that Internet service providers allow NebuAd to come in, and when anyone does anything on [their] system, [they] shovel all the information over to you,” Dorgan said. “Isn’t that just wiretapping?”

Dorgan argued that NebuAd’s model is based on an opt-out system that depends on Internet subscribers to ignore its notices about collecting ISP information, implying that an opt-in system might be required to protect users. “If my ISP [asked] ‘Is it OK if we give everything you do to another company?’ I’d say ‘Of course it’s not OK, are you kidding me?’ ” Dorgan said. “ So from an opt-in standpoint I’m guessing this is not a workable model.”

NebuAd’s chief executive, Bob Dykes, countered that NebuAd doesn’t violate any federal laws nor does it share all of a subscriber’s history or personal details with advertisers, only limited facts. If a user visited Mercedes and BMW sites, for instance, NebuAd might record the fact that they were interested in German luxury cars. Dykes also pointed to NebuAd’s system of sending e-mails and letters informing subscribers and giving them a chance to opt out of the program. “We’re only looking at select, innocuous market segments,” he said. “And I’d also like to point out that we provide very robust notice to the user,” he said.

Leslie Harris, director of the Center for Democracy and Technology (CDT), who also spoke before the Senate committee, wasn’t convinced. She argued that just having enough information to decide when data should be tracked and when it should be ignored means that NebuAd’s model represents a privacy violation. And regardless, she contended, the company’s practices seem to violate the Federal Wiretap law, which states that a communications provider can’t share its subscribers’ information without consent. “It’s important to note that our wire tap laws don’t care if the information is personally identifiable or not identifiable,” she said.

On Tuesday, the CDT issued a memo to the Senate’s commerce committee detailing its argument that NebuAd violates the Federal Wiretap Law. NebuAd responded with its own memo, arguing that the wiretap law was created too long before the advent of the Internet to apply and that the company’s opt-out model makes its data-tracking legal.

Wednesday’s Senate hearing wasn’t the first government scrutiny that NebuAd has received. U.S. Reps. Ed Markey, D-Mass., and Joe Barton, R-Texas, wrote an open letter last month calling for ISPs to break off dealing with NebuAd. So far, three ISPs–
Charter Communications
,
CenturyTel
and Wide Open West–have taken their advice, dropping the ad firm’s services.

Despite the criticism of NebuAd’s data-tracking system in the hearing, the committee’s senators were more ambivalent about the data gathering of companies like Google
, Microsoft
and Facebook. After hearing executives from those firms describe their privacy practices, Senator Jim DeMint, R-S.C., argued that with enough transparency, Internet advertising might not need regulation.

“Consumers need to know what data is being collected about them. That needs to be disclosed and very transparent so that consumers become the regulators of Internet,” DeMint said, warning that excessive federal regulation could hurt small businesses advertising on the Web. “Disclosure and transparency is the best way to make sure we end up with a vehicle that not only benefits consumers but is great for our economy.”